Cameco subsidiary opens Boroo mine

In a development that marks the first successful Canadian foray into Mongolia, production is under way at the Boroo gold mine, northwest of Ulaanbaatar.

Boroo, 120 km from the capital, is owned by AGR Ltd., which in turn is 56%-owned by Cameco (CCO-T). With its history in Central Asia, Cameco became the logical partner for AGR, which had struggled to develop Boroo through the bad years of the gold market. Now the mine is expected to pour 210,000 oz. gold in 2004, and produce an average of 150,000 to 175,000 oz. over the next eight years — a production rate that will increase Mongolian gold production by about 50%.

Boroo was discovered in 1982 by a joint project of the Mongolian and East German governments, in a foreign-aid arrangement typical of the communist era. By 1989 the government agencies had outlined a resource at Boroo, and after the post-communist Democratic Union government was elected in 1996 the country saw the dismantling of much of the old state economy. In 1997 the deposit went out to the private sector, and was acquired by Boroo Mongolian Mining, which was owned by Mongolian and Western interests.

AGR — then closely affiliated with Australian gold producer Resolute Mining — bought an 85% interest in Boroo Mongolian Mining in April 1999, for 47.8 million shares and US$1.5 million, plus a US$1-million convertible note. A second share issue in late 2000 netted AGR another 10% of the company. The remaining 5% is still in the hands of the Mongolian company, Altai Trading.

Feasibility studies through 2000 and 2001 ultimately came up with development using a shallow open pit, averaging 80 metres depth, with an average stripping ratio around 3.8.

Cameco’s entry to Boroo came in early 2002, when it bought a 52% interest in AGR. Cameco was already active in gold exploration in Mongolia, holding the Gatsuurt project 35 km southeast of Boroo. It contributed a 60% interest in Gatsuurt to AGR as well, bringing the imputed value of the acquisition to US$16.8 million.

Under a rider to the deal, Cameco kicked in a further US$3 million for exploration on AGR’s ground in the Boroo and Gatsuurt areas, receiving a further 4% shareholding in the company in return. The deal diluted Resolute’s shareholding to 8%, where it remains today.

Cameco’s US$12 million, and a US$33-million project loan from Macquarie Bank and Standard Bank, provided AGR with the funds it needed to develop Boroo. The capital cost of the mine was US$75 million, rather higher than the US$34 million quoted in the 2001 feasibility study.

Boroo has a reserve of 10.7 million tonnes grading 3.52 grams gold per tonne. A further 3.4 million tonnes grading 2.09 grams per tonne is in a separate inferred resource.

About 85% of the ore is either oxidized or transitional material. Nearly half the gold can be recovered in the mill’s gravity circuit and the rest is extracted in a carbon-in-leach circuit that brings final recovery to about 90%.

The mine has a workforce of 360, plus just over 100 long-term contract staff. Its cash production cost is expected to be about US$170 per oz. in 2004.

Cameco’s gold spinoff, Centerra Gold, is currently scheduled to come to the market before the end of June in an initial public offering. Boroo and Cameco’s Kumtor mine in the Kyrgyz Republic will be the centrepieces of the new company, which will also include the REN joint-venture in Nevada.

Once Centerra is trading, Cameco plans to have the new company make a share offer to the minority shareholders of AGR.